Hopes that European automobile sales were starting to climb out of a coronavirus pandemic-fueled rout were run off the road on Thursday, after data showed a slump in August.
The European Automobile Manufacturers’ Association said sales fell nearly 19% in the month, following a July decline of 5.7%. That figure was still better than the deep 76% plunge in April as many economies remained locked down during the first pandemic wave. It was also better than May’s 52% drop and June 22%.
Over the first eight months of 2020, European Union demand for passenger cars contracted by 32%, nearly 2.9 million less than during the same period last year. The best August performance came from Italy, which saw a slight drop of 0.4%, while Germany and France led the worst declines of around 20% each.
On an already down day for markets, the update was just another dent. Shares of
dropped over 2% each, while
lost more than 1% each.
The back story: The summer months brought a worrying resurgence of Covid-19 to Europe, with Spain and France particularly hard hit by outbreaks, sparking fears of a second wave into the autumn. The European Central Bank has sent mixed signals over the outlook for the common currency’s economy.
That is as incentives offered by governments to buy cleaner cars also played a role.
“This is an ominous sign, but consistent with survey evidence indicating that the initial leap in pent-up demand is now fading,” said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, of the data, in a note to clients.
“Government incentives to shift to newer and cleaner models, in particular EVs [electric vehicles], likely will continue, but with uncertainty in the labor market set to linger, many households will postpone purchases of new cars,” he added.
The look ahead: There are some headlights in the distance. Analysts at Jefferies on Thursday recommended Daimler and Peugeot PSA (expected to merge with Fiat Chrysler), as plays on a recovering European economy. The research house said its in-house economic activity indicator has shown three straight weeks of improvement.
The two auto makers showed better-than-expected resilience in the second quarter, and solid pricing for new and used cars, said a team of Jefferies economists led by Marchel Alexandrovich.
While some may feel more upbeat, there is one more headache for autos ahead—the tenuous Brexit negotiations.
The U.K.’s Society of Motor Manufacturers and Traders (SMMT), recently warned that a “no deal” outcome would cost the pan-European automotive sector €110 billion in lost trade over the next five years, and put one in 15 EU and U.K. jobs at risk.
“Without a deal in place by 31 December, both sides would be forced to trade under so-called World Trade Organization nonpreferential rules, including a 10% tariff on cars and up to 22% on vans and trucks,” said the SMMT.
The road may be long indeed.